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Wednesday, 22 May, 2002, 08:59 GMT 09:59 UK
Warning as house prices accelerate
People looking in an estate agent's window
House prices are still rocketing
UK house prices are growing at their fastest pace for more than two years, according to the latest figures.

The rise is being fuelled by a shortage of properties on the market.

And it has led to a warning that the property bubble could burst next year if interest rates rise significantly.

If the MPC raises interest rates by 2%... that could cause the housing bubble to burst.

John Wriglesworth, Hometrack

The Royal Institution of Chartered Surveyors (RICS) said members reporting a price increase during the three months to April outnumbered those reporting a decline by 63%, the highest margin since November 1999.

Most said prices has risen by between 2% and 5%.

Burst

RICS said the increases were the result of fewer suitable houses coming onto the market, with the average number of properties per surveyor falling to 60 in April from 67 in March.

The evidence of higher prices was backed up by figures from Hometrack, which monitors 4,000 estate agents in England and Wales.

It said prices had risen by 7.7% in the first four months of this year and by 2.6% in April.

John Wriglesworth, of Hometrack, told BBC Radio 4's Today programme: "If the MPC (Monetary Policy Committee) raises interest rates by 2% then I think that could cause the housing bubble to burst.

"If the MPC does not over-react, and if interest rates go up by a quarter or half of one percent, then I think house prices will run out of steam next year."

First-timers squeezed out

But for the moment there is no sign of price increases slowing.

In the RICS survey, a clear majority of surveyors are forecasting further price rises in the months ahead, with those predicting an increase outnumbering those expecting a decline by 75%, up from 71% in March.

"There appears to be no end in sight to the rise in prices," said RICS national housing spokesman Ian Perry.

He said the soaring prices were making it difficult for first-time buyers to get onto the property ladder.

The latest figures tally with a string of recent studies showing sustained house price growth across the whole of the UK.

Borrowing cheap

Earlier this month, the Land Registry said houses in England and Wales sold for an average of nearly 122,000 during the first three months of 2002, more than 10% up on the same period last year.

And the country's second-biggest mortgage lender, the Nationwide building society, said house prices rose by a record 3.4% in April.

The current property boom - the biggest in over ten years - has been fuelled by high levels of employment and low interest rates, making mortgage loans cheaper.

A shortage of saleable properties, particularly in the south-east of England, has further accelerated the rate of house price inflation.

Yorkshire tops growth league

RICS said the property shortage is holding back sales activity, with surveyors completing 37 sales on average during April, down from 38 in March.

The organisation added that overpricing has made it difficult to sell some houses, especially in property hotspots such as London and the south-east of England.

Prices rose fastest last month in Yorkshire and Humberside, followed by Wales and the north of England.

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The BBC's Kevin Bocquet
"Home prices are rising beyond the reach of first-time buyers"

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24 Jan 02 | Business
07 May 02 | Business
18 Apr 02 | Business
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